If you’ve been considering investing in pooled real estate funds, you need to understand the benefits of doing so first. Investing in real estate in general gives you way more flexibility, profitability, diversification, and tax efficiency than you ever considered with any other investment.
Absolute returns qualifications and correlations to other asset classes to think about. Let’s take a look at some of the biggest benefits of investing in pooled real estate funds.
- You gain flexibility. If somebody invests in a single asset, they’ve placed all of their eggs in one basket, or in this case, all of their opportunities in one property. However, if an investor. Put their funds in a pooled investment, they’ve created a multitude of opportunities for themselves. It’s always important to get the right advice on legal regulations of syndications before you get started, however. You want to have the flexibility, but only if your money is going to the right place. A pooled fund can help an investor to create a more diversified portfolio without having to put their money into individualized assets.
- The profitability is big. Sponsors are highly motivated to achieve big profit goals because funds are structured to return the profit to the investor. It doesn’t matter whether any profit has been made for the fund itself. Funds have a goal to keep all parties aligned as best as it can be, and so investors will always enjoy a much more regular return on their investment as a result. Investing in a pooled real estate fund brings better profitability.
- The tax efficiencies. Most funds have a lifetime longer than a year and investments are taxed at long term capital gains rates instead of the short term capital gains rates. As an investor, you might also benefit from passing through depreciation and tax matters are mainly dependent on the information from your own accountant. There are still tax benefits to investing in a real estate fund, so you should probably look into the legal ramifications of it.
- The chance to diversify. If you’re looking at diversifying out of stocks and other options for money, you’ll be able to mitigate your risk of owning one investment in the event of an economic downturn. Diversification is more than helpful and you’ll be able to pull away from other investment types.
- It offers a preferred return. Unlike other investments, real estate funds will often assure the investor of receiving their profits and carrying interest. Of course, no fund can ever guarantee a return, but most funds in real estate will offer a preferred return in addition to any pro rata sharing of the funds overall profit.
- It’s highly liquid in nature. Real estate investing has proven to be a protected way of investing, so if you’re looking for a way to keep money flowing in, then the correlation to other asset classes is much lower.
Understanding the benefits of investing in pooled real estate funds can help you to make a more informed decision.
